Key takeaways

Signs that the EU Taxonomy is influencing investment strategies

Key Takeaways

Signs that the EU Taxonomy is influencing investment strategies

1. Companies are becoming more sustainable.
 

The average revenue and capital expenditure (CapEx) alignment across all sectors is increasing year-on-year. Moreover, the relative stability of reported alignment enhances the value of the EU Taxonomy as an investment screening tool for portfolio managers.

2. Companies are making significant investments in sustainable activities.

The average alignment of CapEx is significant, suggesting that companies will be even greener once those investments bear fruit. This green shift is most evident in the Utilities sector, with an average CapEx aligned to the EU Taxonomy of over 60%.

3. Taxonomy disclosures help to create sustainable portfolios. 

The five sectors with the highest average alignment with the Taxonomy are: Utilities, Real Estate, Energy, Materials and Industrials, with an average alignment equal to or greater than 10%. This information can help identify sustainability leaders and create diversified portfolios.

4. Companies contribute more to climate change mitigation than to climate change adaptation. 

The average revenue alignment across all sectors was 15% for mitigation and 2% for adaptation for 2023.

 

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5. Investors are starting to adopt the EU Taxonomy.

Nearly half of Article 8 and 9 funds report EU Taxonomy alignment of their portfolio, and some are starting to use the EU Taxonomy in their investment processes. Meanwhile, the pool of capital available to companies is substantial; ~60% of AUM managed in Europe have sustainability characteristics and/or objectives.

6. The EU Taxonomy is being adopted outside the EU’s borders.

Imitation being the highest form of flattery, over 100 companies across North and South America, Europe, Asia, and Africa are reporting on their EU Taxonomy alignment. At 16%, the average revenue alignment of non-EU firms was higher than the EU company average, suggesting that the EU Taxonomy attracts sustainability leaders from around the world.

 

 

Summary

 

 

The EU Taxonomy disclosures have provided new insights into the true sustainability of companies. Moreover, the quality of the Taxonomy disclosures year over year reinforces the reliability of this data for broader financial decision-making. 

The adoption of the EU Taxonomy beyond the EU’s borders results in a larger investable universe with a common definition of sustainability. We’re only two years into EU Taxonomy reporting but the results look promising.